Pedestrians cross the street in front of Twitter headquarters in San Francisco. As it nears its IPO, the company is building the foundation for new revenue streams.
Now Twitter is all about advertising, but it's taking steps to expand into entirely new businesses. It's been laying the groundwork to build new revenue streams.
The fact that Twitter's core business is ads means there's potential for Twitter to help marketers sell stuff, not just when users shop online or in stores after leaving Twitter, but right in the moment, within Twitter.com or a Twitter mobile app.
Twitter has made it public that it sees huge potential here — in August it hired former Ticketmaster CEO Nathan Hubbard as its first-ever head of commerce.
How would Twitter commerce work? Twitter could use information about users' location and interests to offer products or deals. Eventually we can expect Twitter to allow users to link a credit card to their account for one-click purchases within Twitter. Twitter could also partner with the likes of eBay, Amazon or Etsy to link accounts, so users could make a purchase without inputting credit card information.
When Papa John's is advertising pizza to folks who are tweeting about being hungry during a basketball game, the pizza chain could allow people to click to buy. The Red Cross now allows people to text to donate money — in the future they could donate via Twitter. If Twitter can get people to input their credit card information — which requires a level of trust that the data will be secure — this would allow hotels to offer empty rooms, concerts to sell last-minute tickets or restaurants to fill tables.
This could be a huge boost for Twiter's bottom line because Twitter could take a fee from those transactions, and the potential to sell things could drive a lot more advertising on the service.
Twitter already has a partnership for American Express called Sync, allowing users to link credit cards with Twitter handles. Cardholders can then tweet at a certain Twitter handle with a certain hashtag to make a purchase. It's innovative, but it's not streamlined; it involves Tweeting back and forth to make sure a sale goes through.
In September Twitter purchased a mobile-focused ad exchange, called MoPub. The company will allow Twitter to build its real-time bidding and narrow targeting into its own ads. MoPub will also be able to expand its existing business of helping marketers and mobile developers serve ads — target them and measure their impact — across the mobile Web. Twitter is laying the groundwork to be an advertising powerhouse outside its own service.
Many say Twitter is leaving money on the table from data licensing. Twitter has said it expects data licensing revenue to be a declining percentage of overall revenue — but just because this business line won't grow as fast as the rest of Twitter's business doesn't mean there isn't more money to be made from selling access to its fire hose of data.
Topeka Capital Markets analyst Victor Anthony points to the opportunity for Twitter to expand "aggressively into video." He says Twitter holds promise as an "over-the-top video platform," like YouTube or Hulu. Twitter has very much positioned itself as a partner to traditional broadcasters and programmers, as a "second screen companion." The question is whether it'll start to be a destination for finding video content, and what kind of ad revenue that could generate.
—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin.
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First published November 6 2013, 10:49 AM